Gold miner to tap other streams of opportunity

Mr Lim says that given the unpredictability of commodity prices, CNMC Goldmine is exploring other areas of development. "We were inspired by the collapse of oil prices 18 months ago to look for a safety net. That really underscored the fact that comm
Mr Lim says that given the unpredictability of commodity prices, CNMC Goldmine is exploring other areas of development. "We were inspired by the collapse of oil prices 18 months ago to look for a safety net. That really underscored the fact that commodity prices are beyond anyone's control."PHOTO: CNMC GOLDMINE

CNMC, knowing that resource at its mine will run out, eyes other concessions

Operating excavators and bulldozers, drilling and blasting rocks - this is the stuff of every boy's dreams.

For CNMC Goldmine Holdings chief executive officer Chris Lim, 42, the fascination with mining began early. "You get to blow rocks up, play with chemicals, and ride in helicopters to transport gold - it's a boy thing! Is there any other job that is cooler? I don't think so," he said with a laugh.

In the initial years, the family business revolved around the mining of dimension stones, including granite and marble. But this segment was plagued by stiff competition and pricing pressure.

In 2004, the opportunity to mine gold came with the Sokor project in Kelantan, Malaysia. It started out as a government-to-government venture between the Kelantan state government and a Chinese state- owned enterprise, a relationship that was facilitated by Mr Lim's father and CNMC chairman, Professor Lin Xiang Xiong.

When this arrangement fell through, Prof Lin, the chief adviser on Kelantan-China international trade for the Malaysian state government, took Sokor private and CNMC began operations in 2006.

TEAM EFFORT

The success of Sokor today is the success of the group as a whole - everyone in CNMC has put in effort over the years as a team, and as a family. We take care of our staff and, in turn, our staff takes care of us.

MR CHRIS LIM, chief executive officer of CNMC Goldmine Holdings, which has been able to build a strong production team because of its people-centred focus.

"The Kelantan chief minister had enough faith and trust to give us the Sokor project, so no matter what, we had to do it well, so as not to disappoint him and others who believed in us," Mr Lim recalled.

It was a gruelling journey. Father and son faced a barrage of criticism from sceptics.

"Malaysia was not known for its gold-mining industry then. The burning question on everyone's lips was: Could we deliver? But we took all the criticism in our stride and turned it into a source of encouragement," he said.

A ROUGH RIDE

Certainly, there was no shortage of hurdles. "We experienced a myriad of ups and downs... Things we did not think would go wrong went wrong, and things we initially thought weren't so bad became worse. But we pressed on."

Life was tough and funds were scarce. "We had to do everything ourselves," he said.

In the early days, Mr Lim and the geologists lived in a hostel about two hours' drive from the mine. They drove to the site every morning at the crack of dawn in a rickety, old vehicle, using logging tracks to navigate through the jungle.

"There was nothing but trees and rocks all around us, and I remember seeing tiger paw prints along the way," he said.

CNMC has come a long way since.

Today, the Sokor gold field is the group's flagship project; the 10 sq km area has four identified gold deposits. The group achieved its first gold pour on July 21, 2010, and its output has been rising steadily, exceeding one tonne of bullion as of July 2014.

There are now staff hostels, a canteen and even Internet access.

"And that's the miracle of mining - creating something out of nothing, in the middle of nowhere," Mr Lim said.

ONE TEAM, ONE FAMILY

"The success of Sokor today is the success of the group as a whole - everyone in CNMC has put in effort over the years as a team, and as a family," he said.

The group has been able to build a strong production team because of its people-centred focus.

"We take care of our staff and, in turn, our staff takes care of us," Mr Lim said. "We are one big family, regardless whether you are an excavator operator, a mechanic, a security guard or an accounts executive. On site, the staff all eat together - there is no such thing as an executive dining area."

In October 2011, CNMC was the first gold producer to list on Catalist. Between 2011 and last year, CNMC revenues grew to US$36.5 million (S$49.7 million) from US$5.1 million. It reported a net loss of US$5.1 million in 2011, but has now generated US$13.4 million in profits after tax, according to annual reports.

CNMC has a market capitalisation of $124 million. Its shares hit an intraday 12-month high of 32 Singapore cents on May 4. In the year thus far, the stock has generated a total return of 61.4 per cent, against a decline of about 3 per cent in the benchmark Straits Times Index.

Gold jumped to a 15-month high last week, crossing the US$1,300 per ounce mark briefly on May 2. The metal has rebounded more than 20 per cent from its low of US$1,051.10 last December.

Looking ahead, CNMC aims to continue boosting its gold output and resources. Exploration continues at Sokor to extend the life of the mine and identify fresh targets for production. It also aims to develop silver, lead and zinc resources already discovered at the project.

The Sokor project's gold resources rose to 618,000 oz at the end of last year, from 506,000 oz at the end of 2014, despite extracting more than 31,000 oz in 2015.

BUILDING A BUFFER

Nonetheless, resource depletion is one spectre that looms large.

"There will come a time when the resource will be drawn down, so that's why we need to go out and actively look for new concessions around the region," Mr Lim noted.

CNMC will focus on mining assets in Malaysia and other parts of Asia.

It is unrealistic for CNMC to venture beyond the Australasian region because of size. And while other mining projects in Malaysia may offer good potential, the group continues to be cautious and selective.

"We do not want to take on anything that we have no confidence in turning into a producing asset," Mr Lim said.

Meanwhile, CNMC is exploring the feasibility of diversifying its earnings, building a second revenue stream as a buffer.

One non-mining but related business that could potentially be a good fit is plantations.

"Plantations require big plots of land, which we already have, and the equipment used in plantations is similar to what is on site - tractors, bulldozers and excavators," Mr Lim said. "But nothing is on the table at this point in time."

What is certain, however, is the unpredictability of commodity prices, he noted. "We were inspired by the collapse of oil prices 18 months ago to look for a safety net. That really underscored the fact that commodity prices are beyond anyone's control.

"We are already one of the lowest-cost gold producers in the world. But what happens in an unlikely situation where gold prices fall below US$500 an ounce? We don't want to be in the same position as the oil and gas companies."

AN INDOMITABLE SPIRIT

CNMC's all-in cost for FY2015, including the cost of mining operations, the capital spending required for exploration and production, and other costs not directly related to operations, stood at US$608/oz.

This is lower than that of many producers in Australia, the US and Africa, and gives the group an all-in margin, defined as the all-in cost of output versus the realised selling price, of 48 per cent. This provides a significant cushion against any decline in gold prices.

"Our costs are relatively low because Sokor is an open-pit mine - the mineralisation starts near the surface, and the ore is very leachable," he added. "The deeper you go, or the more complicated the geochemistry of the rock, the higher the costs of extraction."

Given the volatile outlook for commodities, Mr Lim has taken to watching gold prices like a hawk.

"I'm always checking the gold price through an app on my phone - it's the first thing I do when I wake up, and the last thing I look at before I go to bed."

Needless to say, the business administration graduate from Australia's Deakin University is no stranger to challenges. "One thing I learnt from the chairman, my dad, is that never-say-die attitude. If you want something, you need to pursue it relentlessly, regardless of how many times you fail," he said.

And in business dealings, always maintain your integrity.

"That's the legacy my dad created, and that's what I want to pass on to my kids," said Mr Lim, who has a one-year-old son.

Mr Lim has a strong bond with his father, 71, a Chinese ink-and-brush artist of international repute.

"My dad also taught me to expect problems in life - not every day will be a fair-weather day," he added.

"The key is learning to solve the problems, anticipating them before they arise, preventing them from developing further, and managing them well when they do crop up."

  • This is an edited excerpt from the Singapore Exchange's Kopi-C: The Company Brew column that features C-level executives of firms listed on SGX. A longer version can be found on SGX's My Gateway website: www.sgx.com/mygateway
A version of this article appeared in the print edition of The Straits Times on May 09, 2016, with the headline 'Gold miner to tap other streams of opportunity'. Print Edition | Subscribe